Penalty rate cuts could boost economy: RBA

Cuts to weekend penalty rates for retail and hospitality workers may create more jobs and boost spending in the economy, the Reserve Bank says.

Governor Philip Lowe faced questions about Thursday's controversial Fair Work Commission decision when he fronted a parliamentary economics committee on Friday, with Labor's Matt Keogh quizzing him on whether the cuts would dampen consumption and in turn, economic growth.

Dr Lowe said subdued spending among those taking a pay cut was one of two outcomes, with the alternative being more jobs and more spending.

"If wage restraint leads to more people having jobs, which I think is what's happened in Australia, more people have money in their pocket than would have been the case otherwise," he told the committee.

"So the aggregate level of spending might actually be higher."

Dr Lowe said weak wage growth in recent years had allowed more Australians to have jobs in the aftermath of the mining investment boom.

"When more people have jobs, they feel like they have more security and slightly more willingness to spend," he said.